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Advantages And Disadvantages Of Activity Based Costing Accounting Essay

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Account-based costing is a bing method that delegate the cost incurred to the merchandises and services based on the activities executed for the merchandises and services. The premise of ABC is merchandises and services are the result of activities whereby activities uses resources when produce the productions or services. The cost of resources is being distributed harmonizing to the resources used during production.

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The sum and cost of resources will be discovered before the cost is distributed as ABC method administering cost harmonizing to the measure of resources used during production.Advantages of Activity-Based Costing First, ABC method is giving the users a more precise analyze on profitableness of merchandises and services therefore users can hold a better scheme or determination on the monetary value that they should sell, which merchandise line that they should bring forth so that they can maximise the net income. ABC method is assisting in bettering the merchandises by supplying a more precise computation of cost driver to the users.

By holding an accurate consequence, users can make up one’s mind a more suited design and measure to bring forth.

Third, ABC method provides information on the field whereby betterment is needed. Users will so move on the field where betterment is needed so that clients are satisfied with the merchandises and services. Following, bettering the merchandise costs will lend to a better appraisal of bing such as cost of planning, budgeting and pricing determination doing procedure.Last, in order to acquire better information for determination devising, the costs of bring forthing of ABC method is expanded in ABC method.

Disadvantages of Activity-Based Costing The chief disadvantage of ABC method is it is complicated, expensive and clip consuming. It is expensive to keep the procedure of roll uping informations and informations entry these stairss require of import resources. Second, the inside informations of ABC method are of import but excessively concentrate on inside informations will do the users lose their sight on the bigger image of the companies.Besides, it is impossible to administer such as wage of main executive certain operating expense.

The studies of ABC may non accommodate the criterion of certain sections of authorities and as the consequence, companies will hold to maintain two bing system and accounting book to run into the demand of internal and external of companies. This is seems to be making a duplicate occupation and is a waste of clip. Last but non least, credence of ABC method is another disadvantage of ABC.Traditional costing has been served organisation for many old ages and they may non familiar with ABC method as ABC method is more complicated compared to traditional costing.

Activity Based Costing VS Traditional Costing System For traditional costing method, operating expense is distributed harmonizing to the volume of cost driver or in other word operating expense is divided every bit among all the merchandises that are produced. For ABC method, the operating expense is distributed harmonizing to the activities used for production.Since traditional costing method distributed the overhead cost every bit among the merchandises, it seems difficult for us to find which merchandise is utilizing the most resources and frailty versa. Unlike ABC method, the operating expense cost is distributed among the merchandises harmonizing to the activities used and it makes us clearer position on the existent cost of each merchandise that being produced.

Although ABC method is giving users a clearer position on the cost, yet it is more expensive to put up compared to traditional costing.Apart from that, ABC method is more flexible in fixing a study as ABC method is concentrating on compilation costs through few cardinal cost drivers and therefore it enables users to bring forth different studies harmonizing to their demand, whereas for traditional costing method, the cost is being compiled through unit produced. ABC method is able to supply better and more accurate studies than traditional costing method but traditional costing method will still be used to carry through the demands of conventional fiscal coverage.How Implementation Activity Based Costing from Other States The first instance survey chosen is a Hong Kong instance.

A study is carried out to probe why users choose to utilize ABC method and whether users are satisfied with it. The concluding consequence shows that few companies are utilizing ABC method and most of them are satisfied with ABC method. While implementing ABC method, adoptive parents will ever confront jobs like garnering information, changing ABC method so that it is suited for new activities and enrolling staff who familiar with ABC method.The ground why ABC method is implemented alternatively of traditional costing system is to acquire a more accurate cost informations.

Disadvantages of ABC bing still be and one of the chief jobs is lack of experient employee, therefore puting up ABC method without experient employee is clip devouring. Besides, satisfaction with traditional costing system and without support from direction degree to implement ABC method is the grounds why ABC is non implemented. Another instance survey chosen is a Thailand instance.In this study, top direction support for ABC method is the chief factor that affects the prosperity of ABC.

This factor is claimed to be the chief ground that contribute to the success of ABC. After implementing ABC method, users claimed that the measuring of public presentation is improved, consistent betterment and more effectual in budgeting. However, there are still challenges such as low coordinating among sections. Harmonizing to the consequence of study, deficit of support from direction degree and opposition to ABC method from employees is non an of import issue.

Thais ever carry out occupations harmonizing to the instructions given by their supervisor and determination is ever made by direction degree therefore this is non seen as a critical issue. This survey shows that although usage degree of ABC in Thailand is low but the involvement to implement ABC is much higher. Some major grounds of execution are the competitory environment and traditional costing method can non supply the accurate costing.

Cite this Advantages And Disadvantages Of Activity Based Costing Accounting Essay

Advantages And Disadvantages Of Activity Based Costing Accounting Essay. (2016, Nov 25). Retrieved from https://graduateway.com/advantages-and-disadvantages-of-activity-based-costing-accounting-essay/

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